RaboResearch - Economic Research

Dit artikel is ook beschikbaar in het Nederlands

Japan: spring upturn, but not a spring forward

Economic Quarterly Report

  • Economic growth was surprisingly strong in the first quarter of 2015
  • Underlying, however, the situation has hardly changed and the benefits of the weak yen will still only marginally affect export growth
  • Finally economic reforms are necessary to structurally enhance Japanese economic growth and to keep the public debt on a sustainable track in the medium term

Q1 2015 GDP was stronger than the market consensus at 0.6% QoQ, generating positive media headlines. Moreover, nominal GDP rose 1.9% QoQ, up significantly from a revised 0.7% in Q4; the deflator in the quarter was also 3.4% YoY, a full percentage point higher than that seen in the previous three months - that is a critical momentum to maintain if Japan is to achieve ‘escape velocity’ from its very-worrying public debt load.

Figure 1: Stock formation drove economic growth
Figure 1: Stock formation drove economic growthSource: CEIC, Rabobank

At the same time, private consumption was also stronger than expected, increasing 0.4% QoQ and contributing 0.2% points to the headline figure, a welcome surprise given that consumers have largely been in retreat since the sales tax was increased in April 2014. Nonetheless, that was the sum total of the good news in the report. Indeed, 0.4 percentage points of the 0.6% headline GDP growth, so two thirds of the total, was accounted for by an increase in inventories, a trend which is usually reversed in the following quarter. In short, there was nothing substantial in the details to suggest that the economy is any closer to establishing a significantly stronger trend rate of growth than it was displaying before the onset of the radical ‘Abenomics’ experiment in early 2013: rather, Japanese GDP still seems firmly stuck in a 1.0% - 1.5% YoY volume growth range at best.

Limited support from weak yen so far

That is a damning indictment given the staggering scale of QE still being undertaken by the BOJ and the resultant weakening in the Japanese Yen, which at time of writing had just broken through the 123 level vs. USD, the lowest it has traded at since mid-2007 (and down over 20% from where it stood a year ago). Perhaps understandably given that backdrop, if there is any area that shows some hope for the economy it is the export sector, and recent trade data have been more encouraging. For example, in April exports were up 8.0% YoY while imports were down 4.2%, narrowing the trade deficit to just JPY53 billion;  and in March Japan even managed to run its first trade surplus (JPY227 billion) since June 2012. Yet this shift to net-export led growth is also less impressive than it seems: imports are down YoY on the back of lower energy prices as much as anything to do with Japanese competitiveness, while the 8.0% YoY gain in exports in April was less than half the decline seen in USD/JPY, underlining that Japan did not take full advantage of the opportunities presented to it by a much weaker currency.

Wage growth does not join in the dance

Overall, this means that Abenomics still consists of BOJ intervention and Yen devaluation leading to a temporary gain in export competitiveness at the expense of competitors. A similar strategy has previously failed to rescue Japan when tried in the past, and we see no reason why this time will be different. Indeed, we can also expect a push back ahead against the weak JPY trend - Korea in particular will be watching closely. Fundamentally, one chart that explains what needs to change for Abenomics to be said to be really working is that showing real incomes. These continue to plunge, as although the BOJ has (temporarily) succeeded in creating inflation via currency devaluation, with the help of the sales tax rise too, this is simply not being met with matching wage increases regardless of the low level of unemployment. In short, Japan is discovering that in the ‘new normal’ the traditional trade-off between inflation and unemployment is broken, with most new jobs being created tending to be temporary, part-time, and/or poorly paid; they cannot bid up wages, and only exist because of low wages. As such, the Abenomics/BOJ plan of “push up inflation to generate wage growth” cannot succeed, as what is needed is a strategy of “push up wages to generate inflation”. Sadly, Japan appears as far from understanding that as the US and Europe are, which is why we are seeing such sharp swings in USD/JPY, EUR/USD, and EUR/JPY. 

Figure 2: Real income continues to fall
Figure 2: Real income continues to fallSource: CEIC, Rabobank
Table 1: Key figures Japan
Table 1: Key figures JapanSource: NiGEM, Rabobank


The Economic Quarterly is a publication of Economic Research (KEO) of Rabobank and a co-production with Financial Markets Research.

The views presented in this publication are based on data from sources we consider to be reliable. Among others, these include Macrobond. The economic growth forecasts are generated from the NiGEM global econometric structure models.

This data has been carefully incorporated into our analyses. Rabobank accepts, however, no liability whatsoever should the data or prognoses presented in this publication contain any errors. The information concerned is of a general nature and is subject to change.

No rights may be derived from the information provided. Past results provide no guarantee for the future. Rabobank and all other providers of information contained in this study and on the websites to which it makes reference accept no liability whatsoever for the content or for information provided on or via the websites.

The use of this publication in whole or in part is permitted only if accompanied by an acknowledgement of the source. The user of the information is responsible for any use of the information. The user is obliged to adhere to changes made by the Rabobank regarding the information’s use. Dutch law applies.

Abbreviations for sources: CBS: Statistics Netherlands, EIU: Economist Intelligence Unit, NIESR: National Institute of Economic Social Research, ONS: Office of National Statistics, OECD: Organisation for Economic Co-operation and Development.

Abbreviations used for countries: GB: Great Britain (UK), IE: Ireland, US: United States, DE: Germany, IT: Italy, NL: Netherlands, ES: Spain, AT: Austria, FR: France, GR: Greece, BE: Belgium, FI: Finland, EZ: Eurozone, CY: Cyprus, PT: Portugal, SI: Slovenia, MT: Malta, EE: Estonia, LV: Latvia, SK: Slovakia, LT: Lithuania.

Abbreviations used for currencies: BRL: Brazilian real, IDR: Indonesian roepia, INR: Indianroepie, TRY: Turkish lira, ZAR: South African rand.

Economic Research is also on the internet: www.rabobank.com/economics

For more information, please call the KEO secretariat on tel. +31 (0)30 – 216 2666 or send an email to economics@rn.rabobank.nl

Allard Bruinshoofd, head of International Research, Economic Research
Tim Legierse, head of National Research, Economic Research

Graphics: Selma Heijnekamp and Reinier Meijer

Production coordinator: Christel Frentz

Michael Every
RaboResearch Global Economics & Markets Rabobank KEO
+852 2103 2612

naar boven